Penalties under GST

Penal provisions have been prescribed for all kinds of offences in GST law. The law also mentions certain principles on which these penalties should be based.

General Principles for Imposing Penalties:

1) No penalty for minor breach:

Often a person can make mistakes which may appear as fraud or an attempt to evade tax. Sometimes, these mistakes are committed unknowingly or without any malicious intention. The reason could be poor understanding of tax laws or carelessness in following procedures.

Therefore, to save innocent persons from hassles of penalties or associated processes, the model GST law has laid down some guidelines:

If the error in taxes is Rs. 5,000 or less, then the breach should be considered minor & no penalty should be imposed.

If the mistake committed by the person is easily rectifiable, then the breach should be considered minor & no penalty should be imposed.

2) Penalty should align with severity of breach

Severity of breach of law should be established by analysing the facts & situations & penalty should be imposed accordingly.

3) Reason behind penalty should be disclosed

Model GST law asks the tax authorities to ensure that the person on whom penalty is to be imposed has been provided all the relevant information before being penalised. The concerned person should be informed why he is being penalised.

4) Lower penalty on voluntary disclosure of breach

Penal provisions of model GST law are lenient for those who voluntarily disclose the breach they committed. This will give encourage offenders to admit their wrongdoings without worrying about the repercussions. As per clause 68(5) of model GST law, a tax official may consider this action while establishing penalty. However, this provision will not be applicable in cases where the law prescribes a fixed amount or fired percentage of money as penalty as per clause 68(6) of model GST law.

Amount of Penalty as per GST Law

Any offender who commits an offence which results in tax evasion can be punished with a penalty which is higher than the amount of tax evaded as per sec 66 (1).

If a person pays insufficient tax then he can be penalised with Rs 10,000 or 10% of tax deficit, whichever is higher. as per section 66 (2).

Penalty for any Offence Where No Separate Penalty has been Prescribed

If a person commits any offence for which separate penalty has not been prescribed, then the quantum of penalty can go as high as Rs. 25,000 as per section 67.

Punishments as a Result of Prosecution

If the person is convicted for any offence under section 73(1), then he shall be punishable with a penalty as under the following:

Amount of Tax Evaded

Punishment

1. Between Rs.25 lakh and Rs.50 lakh

1 year imprisonment + fine

2. Between Rs.50 lakh and Rs.250 lakh

3 years imprisonment + fine

3. More than Rs. 250 lakh

5 years imprisonment + fine

Minimum Amount of Punishment as a Result of Prosecution

In the absence of special grounds to the contrary to be recorded in a judgment of the court, the Act provides that the term of imprisonment shall not be for a period of six months.

Other Rules Related to Offences

Cognizance of Offences

The law specifies that any court is not allowed to take cognizance of any offence without proper sanction from concerned authority. Any court which holds a lower position than a Magistrate of the First class cannot hold trial against an offence under GST.

Presumption of “Mens Rea” or Guilty Mind

When prosecuting an offender, the court shall assume that the accused had a guilty mind or the law was broken with the intention to break it. The accused shall have the liberty to prove it otherwise.